Tied to the dollar, inversely, as the dollar declines, gold stays constant in other appreciating currencies. That was the knot I mentioned in many posts, but I apologize for not being clear on that in the last one (though, I thought it was understood from the premise that I expected gold to revive some as the dollar decline was not complete).
I am not an expert on gold...(maybe I should "bone up")....is it possible to briefly explain how gold is tied to the USD? My uneducated belief was that if the dollar was weakening that was a positive for gold..am I all wet?
No, not even damp!...... <gg>
This was posted just before your inquiry to Zeev and may be of some help to you.
Gold versus the Dollar
Most gold market analysts know that there is a relationship between gold and the US$ such that the gold price tends to move in the opposite direction to the US Dollar's exchange value. However, it is amazing how few analysts really understand how this relationship works and, by extension, how markets work in general.
The key point to appreciate can be expressed as follows: The gold price does not move in the opposite direction to the US$, it moves in the opposite direction to the expected future direction of the US$. Obviously, current price behaviour affects the expectations of market participants, but if, for example, speculators in the gold market expected a fall in the US$ to be reversed over the coming weeks/months then the gold price probably wouldn't rally in response to such a fall. Similarly, if a US$ rally was perceived as being a short-lived bounce then the gold price probably wouldn't fall in response to such a rally. Those who don't understand this will be constantly trying to explain why the US$-gold relationship has apparently broken down. In reality, the relationship never breaks down.
While speculators in gold futures are continually trying to anticipate the future performance of the US$, speculators in gold stocks are continually trying to anticipate the future performance of the gold price. This is why gold stocks often appear to be behaving strangely (rising on days when the gold price falls and falling on days when the gold price rises). As speculators in gold stocks we buy/sell based on where we think the gold price is going to be at some point in the future, not where it is today.
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